The guidelines for solar power purchase agreement, brought out by the ministry of new and renewable energy to standardise auctions, cover power projects of 5 megawatts and above. Photo: Bloomberg

New Delhi: The central government has notified a set of guidelines for power distribution firms to buy power from grid-linked solar power projects through competitive bidding under the National Solar Mission.

The guidelines brought out by the ministry of new and renewable energy to standardise auctions cover power projects of 5 megawatts and more and stipulate that the minimum power purchase agreement (PPA) tenure should be 25 years—a condition that would help keep tariffs low.

The new guidelines state that unilateral termination or amendment of PPAs is not allowed.

According to a government official who spoke on condition of anonymity, these guidelines, notified in early August, will help enhance transparency and fairness of the procurement process, while protecting consumer interests by way of making power affordable.

“These guidelines will provide a risk-sharing framework between various stakeholders involved in solar power procurement. It will encourage investments, enhance bankability of the projects and improve profitability for the investors,” the person said.

The guidelines seek to mitigate the risk of a power producer’s revenue getting blocked due to delayed payment or non-payment by the distribution company through instruments like letter of credit, payment security fund and state guarantee.

States, however, can deviate from these guidelines with the approval of the state power regulator, according to Kameswara Rao, leader of the energy utilities and mining practice at PwC India.

“States may find it hard to adopt them in toto and are likely to deviate. But those braving these clauses, especially on offtake and payments, can expect to discover very attractive rates in an auction,” Rao added.

The guidelines provide for termination compensation to enhance bankability of projects by securing the investment of the generator and lenders against any arbitrary termination of the power purchase agreement by the distribution firm.

The guidelines have also incorporated a ‘change in law provision’ to protect parties from developments affecting the project’s viability. It is effective from the date of bid submission and will cover any change in law or tax rate which has a direct effect on the project.